European Commission’s proposal for financial markets lacks teeth

New rules proposed today by the European Commission will shed light on betting on food commodities by financial traders, but will not do enough to prevent speculation from fuelling high and volatile food prices. The warning comes from environment and development groups in a joint reaction to the new draft Markets in Financial Instruments Directive (MiFID II) and accompanying regulation.

The proposed reform, to be debated by the European Parliamant and EU member states in the coming months, allows for limits on the number and size of bets that traders can make when buying and selling futures contracts (so-called ‘position limits’) in an attempt to restrict the impact on prices of commodities such as wheat or soy, and tightens up on harmful ‘high frequency trading’. However, the Commission’s proposal falls short of tackling food speculation head-on. It includes too many exemptions, allows EU member states to create ‘alternative arrangements’ to position limits and does not go far enough to clamp down on speculation that is divorced from supply and demand.

Marc-Olivier Herman, Oxfam International’s EU policy advisor, said: "The European Commission’s blueprint is lacking teeth on commodities speculation. As it stands now, the proposed reform is not robust enough to make sure excessive speculation does not cause drastic price swings in staple foods and to fix broken commodity markets so they work for food producers and consumers. For many people in developing countries food prices are a matter of life and death.”

>> The Commission’s proposal provides for exemptions allowing financial subsidiaries of commodity traders to escape the scope of the regulation.

Daniel Pentzlin of Friends of the Earth Europe said: "The European Parliament and EU member states must now ensure that the rules apply to all speculative activities. It’s unacceptable to leave big traders of grain or maize outside the scope of the market regulation and let them profit from high and volatile food prices.”

>> Caps on the number and size of the bets speculators can make are key to tackling excessive speculation, which has contributed to pushing millions around the world into hunger and poverty.

Markus Henn of the German organisation WEED said: "The Commission’s proposal to allow member states to set-up ‘alternative arrangements’ to position limits is unacceptable, as it allows the financial industry to water down the rules by lobbying EU member states for their preferred interpretation.”

>> Speculation disconnected from supply and demand: Commodity Index Funds, Exchange Traded Funds, High Frequency Trading’ and other investment products foster speculation that is detached from the real economy and widely blamed for fuelling food price volatility.

Murray Worthy of the World Development Movement said "There is no reason why investors seeking to diversify their portfolio should be allowed to flood food commodity markets causing erratic price swings and pushing up prices. Authorities must have sufficient powers to limit excessive speculation and ban trading activities harmful to society.”

For more information, please contact:

Daniel Pentzlin, Friends of the Earth Europe, + 32 2 893 1024 or daniel.pentzlin@foeeurope.org

Angela Corbalan, Oxfam, + 32 473 56 22 60 or angela.corbalan@oxfaminternational.org

Markus Henn, World Economy, Ecology & Development (WEED) + 49 30 2758 2249 or markus.henn@weed-online.org

Myriam Vander Stichele, SOMO, + 31 0 (20) 6391291, m.vander.stichele@somo.nl